Contacted for comment, News Corp would not say whether Foxtel has extended or paid back credit facilities due to expire next week. It also declined to comment on the debt process.
Foxtel has been looking to ramp up its new sport-based streaming service, Kayo Sports, during the peak winter football months and potentially launch additional services focused on entertainment.
I wouldn’t want to be [Telstra CEO] Andy Penn going back to the board asking for more money for Foxtel.
The debt situation raises the possibility that Foxtel’s two powerful shareholders, News Corp, which owns 65 per cent, and Telstra, which owns 35 per cent, could be forced to step in and offer guarantees or inject more capital.
«I wouldn’t want to be [Telstra CEO] Andy Penn going back to the board asking for more money for Foxtel,» said one Foxtel source who was not authorised to speak to the press.
Foxtel has total borrowings of $US1.6 billion, according to News Corp’s most recent quarterly results. It posted earnings before interest, tax, depreciation and amortisation (EBITDA) of $US84 million ($120 million) in the December quarter. According to Morgan Stanley, that was a 46 per cent decline on the preceding year.
In the 2018 calendar year, the business posted EBITDA of $US173 million, while UBS analysts expect it to make EBITDA of $US337 million this year.
The plunge in Foxtel’s earnings has led some industry observers to question whether the pay TV company has come close to breaching the covenants on its existing loans.
A $2.5 billion debt raising would imply a leverage ratio of more than seven times EBITDA, which is typically considered high.
Foxtel earlier this year launched Kayo, giving consumers access to the pay TV giant’s premium sporting content for as little as $25 a month — a much lower price than previously available.
It disclosed in February that Kayo had already amassed 115,000 subscribers, which UBS described as «a strong start», given it works out to more than 1 per cent of Australian homes in under two months.
«The long-term potential of Kayo remains unclear, however with the AFL and NRL seasons about to launch, the next two to three months could be critical to understanding how well Kayo scales,» the analysts wrote.
News Corp has been aggressively discounting Kayo, offering it for as little as $5 a month to Telstra customers, and also offering cheaper packages to subscribers of its newspapers.
It is expected to source new debt through US and Australian dollar-denominated loans with banks, and by issuing bonds in the US high yield debt market.
John McDuling is a business, media and technology writer for The Sydney Morning Herald and The Age.
Jennifer Duke is a media and telecommunications journalist for The Sydney Morning Herald and The Age.